Google made big news last week when it announced that it will offer free navigation service for mobile phones as part of its new software, Android 2.0. The service will initially only be available on Motorola’s new Droid phone (on sale beginning Nov. 6), but will eventually be expanded to more phones in the near future.
Unsurprisingly, the day the announcement was made, shares plummeted for GPS giants Garmin and TomTom, with Garmin’s shares dropping by 16 percent and TomTom’s closing around 21 percent lower. This amounts to a combined loss of $1.7 billion for the companies, with Garmin losing a fifth, and TomTom a third of its market value. To be sure, stock prices for both companies have been nothing to gush over throughout the economic crisis, but before Google’s announcement there had been some positive momentum with TomTom’s GPS app created for the iPhone and Garmin’s GPS/smartphone (Nuvifone).
It is too early to know how Garmin and TomTom will recover from and respond to this announcement, but at present their future does not appear to be filled with sunshine and smiles. True, Motorola’s Droid is not necessarily the perfect solution for every customer, and some will still be more comfortable with a dedicated GPS device—it tends to display maps faster, has a bigger screen, doesn’t need to be in cellular range to function, doesn’t come with the annoying two-year commitment of a cell phone plan, and allows the driver to talk on his or her cell phone while simultaneously following a GPS course.
But for many consumers, Google’s offering will be more than good enough. While GPS units cost an average of about $177, customers who commit to a two-year contract can purchase a Motorola Droid for $199. For a $20 difference, customers get a sleek, supercharged smartphone whose navigation features—thank you Google—may even trump those of a standard GPS device. With response to simple voice commands, visual display of Google’s street photographs, point by point directions, and possibly even free traffic data, its navigation features alone make the Droid an attractive product.
So how did TomTom and Garmin fall behind? How did the mighty fall so fast? The answer may have less to do with technology than it does with business models. While the tech industry is obviously moving at a rapid rate, the pace of destruction and transformation of business models in the navigation business is blinding. Instead of making sustaining improvements to their existing products (i.e. Garmin now makes 82 different GPS units) perhaps the GPS giants should have been, and should now be, thinking about how they could transform their respective business models to reach new or existing customers in fundamentally different ways. It may not be too late.
